A business owner we’ll call Bill had the perfect recipe for success. Bill owns a powersports dealership located near Naples, Florida, a Mecca for people interested in playing with powerful machines in beautiful surroundings. Whether his customers wished to ride the waves on a Jet ski or explore trails using an ATV, Bill was the guy to talk to. It also didn’t hurt that he knew the technical specifications of his machines by heart.

The only problem? 18 months ago, it became apparent to Bill he didn’t have nearly as strong a grasp on the horsepower of his actual business. Critically, Bill thought his dealership was worth $6.5 million. If asked, he would confess this was more of a gut feeling than based on anything tangible.

He drew such a conclusion from the fact his shop was forever busy with a loyal customer base, and the cash flow always seemed to be in top shape. His faith was shaken, however, when he got an unsolicited offer to buy him out. A dealer from another state looking to expand into Florida made the overture.

How do I get my business ready to sell?

Normally, a buyout request might make a business owner feel good—it proves the attractiveness of what they’ve built. But there was an issue with the offer Bill received. Clocking in at $2.5 million, it was unflattering.

To say the least.

Naturally, Bill declined it. He wasn’t ready to sell, even if the numbers had come in higher. Even so, he couldn’t brush off the nasty feeling the low offer gave him. As he later told my team of valuation experts, “I’m used to looking at speedometers and tachometers all day—it was hard to accept the fact I might not have any clue about the performance of my business.”

A helpful associate noticed Bill had something troubling on his mind. After listening to Bill’s tale, he had one suggestion—call the business valuation experts at Sofer Advisors. At first, Bill approached us with a transactional need: a scoreboard engagement. He wanted to know if the unsolicited offer was a lowball, or if the value of the business he built was considerably lower than he believed. Bill, an owner as straightforward as the powerful machines he sells, put the question simply: “How much is my business worth?”

After meeting with Bill, our team went to work determining the business valuation for his retail store. We came back with the news Bill was hoping NOT to hear. Yes, the offer was low, but not by much. Our valuation came in at $3.25 million—more than he received—but much lower than what he thought.

How to increase the value of my business?

Bill went back to running his company, but the massive valuation gap stuck in his craw, nagging him. It wasn’t long before we heard back from Bill. He wished to make a transition quite common for our clients. Moving on from a simple transaction (his one-off valuation), we began an ongoing partnership.

The goal? Bill wanted our help to create a roadmap enabling him to achieve the $6.5 million valuation he knew was possible. Achieving such an estimation wasn’t just about bragging rights, either. Bill hoped to profitably sell his business within 5 years. A $6.5 million selling price would fund the retirement he long dreamed of with his wife.

At Sofer Advisors we specialize in helping business owners do just what Bill desired. We assist them in turning their operations into the best possible economic engine. To this end, we build roadmaps based on a quantitative and qualitative analysis of key factors. These can range from profit margins and productivity metrics to customer opinions and even how one’s company fits into its wider industry. We combine such data with our own ability to critically examine a business from a buyer’s perspective. Importantly, we also spot red flags that could hurt one’s valuation.

Once engaged, our roadmap for Bill quickly took shape. While his dealership was indeed popular and did solid business monthly, we discovered areas for improvement. To tackle those difficulties holding Bill back, Sofer acted as a consultant in building a collaborative team of partners and vendors, leading the group through a series of 90-day sprints continuing to this day. (Each business area has its own goal for improvement over a three-month period, at which point progress is assessed and next steps are determined.)

What goes into calculating the business valuation for a retail store?

Here’s one illustrative example of our process at work. We found Bill’s ticketing protocol to be lacking. If a customer reached out for service, it might take days for Bill’s company to get back to them if his senior techs were busy with other projects. Sofer helped Bill locate a vendor to provide automated service ticket requests.

Nowadays, customers get immediate answers. This breakthrough helps Bill’s service techs better understand workflow and forecast customer demand. Such a change was especially impactful because service is one of the dealership’s most profitable offerings. This one improvement alone resulted in increased revenue, including bringing new customers in through the doors.

By following our recommendations and focusing on improvement through 90-day sprints, Bill’s valuation is speedily moving in the right direction. Already, he has enjoyed a major increase in his business’ value. More importantly, he now has a viable roadmap to achieve his goals.

To reiterate, Bill’s journey began with a one-off transactional valuation engagement. It soon transformed into an annual strategic planning valuation which would aide in Bill’s comprehensive plan to enhance his company’s value. If you want to unlock the true potential of your business, or even just need to learn how to read your own scoreboard, please contact Sofer Advisors today. We would be happy to offer you a free consultation.

David Hern is the founder and chief executive officer of Sofer® Advisors, LLC focusing on business advisory services related to litigation assistance, estate and tax planning, and business enterprise valuations for various privately-held and public companies. He is a qualified financial analyst with a proven ability to simply and clearly communicate analysis to boards of directors, presidents and CEOs, CFOs, controllers and private equity portfolio managers. David has been recognized for enabling organizations to determine their enterprise and equity value for a variety of situations including strategic planning, sale or IPO, mergers and acquisitions, financial reporting (common stock, stock options grants, purchase price allocations, impairment analyses, etc.) and tax compliance (estate & gift, 409A, NUBIG). Industry experience includes, but is not limited to, professional services, business service, healthcare, information technology, financial services, and manufacturing & distribution.